This chapter establishes a spatial equilibrium model regarding the investment demand for housing and the size of cities, aiming to explain the phenomenon that housing prices in large and medium-sized cities in China keep rising while the city size continues to expand. The numerical simulation results show that when the investment demand keeps increasing, the housing prices in cities rise, the population and space size expand. At the same time, the levels of urban transportation infrastructure, wages, and total output also increase. The underlying mechanism of this result is as follows: The expansion of investment demand not only pushes up housing prices and intensifies the congestion effect of the city, but also enables the city government to obtain more land revenue, which is mostly converted into public infrastructure investment. The improvement of urban facilities reduces commuting costs, thereby suppressing the congestion effect. As long as the urban agglomeration economies remain unchanged, the relative weakening of the congestion effect leads to an increase in the net agglomeration economies of the city, and thus urban expansion.